iPhone, Text Messaging, Cellular Competition, and Your Money

The iPhone has finally arrived in Canada with an array of plan options, Bell and Telus have just announced new incoming text message charges, and there will be three new carriers vying for cellular customers by 2010. It has been an unprecedented few weeks in the Canadian cellular market. Though there has been a deluge of press coverage, most consumers are still in the dark about what these changes mean to them and their wallet.

Cell phones have become a fashion item, a personal statement, a lifeline, a business tool, an entertainment conduit, and a must-have 24×7 accessory. Over 50% of the world’s population now carries a mobile phone. This has grown rapidly from just 12% of the world’s population in the year 2000. In Canada, there are now over 20 million active cell phone accounts representing over 60% of the population. In more than 30 advanced wireless countries, mobile phone penetration has surpassed 100%. In these advanced wireless countries, as a precursor of the future in Canada, mobile phones have also taken on the roles of electronic wallets, personal televisions, and much more.

The iPhone

Why so much hype? The introduction of the iPhone in Canada heralds the beginning of a new era in mobile communications. Though referred to as a phone, it is much more. It is an Internet connected portable computer with a revolutionary user interface. It portends the mass market emergence of the mobile Internet – the Internet in your pocket. As a platform, it is as revolutionary as the first IBM PC with DOS. Just as during the early days of the personal computer, there have been other smart phones on the market for several years, the iPhone however arrives with the ecosystem elements to drive the smart phone into the everyday lives of consumers.

From an ecosystem perspective, the iPhone combines an attractive piece of hardware with an elegant, innovative, and class leading user interface. With Safari, it has by far the best mobile Internet browser. With the unique iPhone App Store, it is by far the easiest way for consumers to discover, purchase, and install software on a mobile phone. This is evident in the 10 million downloads from the App Store in just the release weekend of the 3G iPhone. According to Apple, there are now more than 800 native iPhone applications available via the App Store, with 200 of them offered free of charge. The completeness of the developer kit and the focus on creating an easy take to market, transaction, and billing and collection capability for developers will ensure that iPhone functionality grows tremendously as software developers create innovative new programs, ultimately leading to further consumer adoption.

So what does this mean to the end consumer? When the first cell phone went on sale in Canada on July 1, 1985, the vast majority of the population saw it as a specialized niche business tool instead of the must have mass market accessory that it has become. Certainly, the majority of the population did not expect to be personally paying over $60 per month in 2008 for this new cellular service. In the same way that the cell phone and home high speed Internet have become integral necessities of life for many, the mobile Internet will become an integral part of the lives of the majority of Canadians in the next 5-10 years. Whether it is an iPhone or a competitor device, a great majority of us will not be able to leave home without it. All of the world’s information available all the time, the Internet in your pocket, will become an indispensible part of everyday life. And of course, plan to budget an additional $30 to $50 per month to feed this habit.

Text Messaging

In the middle of the Rogers and Apple iPhone PR blitz and resulting Canadian consumer rebellion, as evident by www.ruinediphone.com’s 60,000 plus signatures, Bell and Telus announced that they are both going to begin charging for incoming text messages at 15 cents per message for customers not on bulk text messaging plans. By timing it this way Telus and Bell may have hoped to slip quietly under the iPhone PR and the Rogers iPhone plan pricing backlash. Instead the media positioned it as a continuation of the consumer backlash story, just as the Rogers plan story was beginning to crest.

By introducing this additional charge, Bell and Telus will double their usage based text messaging revenue with all of the increased revenue coming in at 100 percent profit. They currently collect 15 cents per message from the sender. Now, with this change, they will also collect 15 cents from the receiver. That is a doubling of price for text messaging without any change in the cost or the usage. Consumers were noticeably upset and the media fanned the anger by discovering confused consumers that worried that their text messaging charges would increase by hundreds of dollars. Notifying these heavy users that they could mitigate these hundreds of dollars of additional charges by subscribing to bulk text messaging plans for $15 or so per month would not have made for the same sound bites.

Nonetheless, the release o f the much anticipated iPhone, Roger’s mismanagement of the data plans, and the Bell and Telus text messaging profit grab has further fueled the love hate relationships consumers have with their cell phone and the cell phone carriers. Consumers are heavily attached to their cell phones but across the board feel that they are being unfairly gouged by the wireless carriers. Whether it is an ever escalating System Access Fee, or excessive long distance pricing, or much feared data pricing, or all of the small additions such as text packages and caller ID packages that take a $30 plan and turn it into a $60 bill every month. The new Rogers data plans as well as the new charges for incoming texts add to the already confusing array of packages, options, unknowns, and pricing that every consumer faces. Whether intentional or not, this confusion works to the benefit of the big three cellular carriers. When faced with the difficult task of comparing plans, options, and unknowns, consumer behavior dictates that, in general, consumers will avoid the stress by simplifying their decision. In this case, consumers simplify their shopping down to a brand, a phone, and a local minutes package. Ignoring and passively accepting that they will be charged some unknown amount for everything else.

The New Carriers

Lost in the excitement of the iPhone launch, the Rogers data plan backlash, and the Telus and Bell profit grab, has been the news that there will soon be two to three new carriers in each market that will compete for cellular customers against the incumbents Telus, Bell, and Rogers. This good news for consumers comes as the federal government’s process for awarding new cellular spectrum licenses approaches completion.

Industry Canada initiated an auction for new cellular spectrum this year that set aside part of the spectrum for non-incumbent carriers. This auction is almost complete and the resulting new landscape is becoming evident.

Likely beginning in late 2009 to early 2010, each market in Canada will see the emergence of two to three new carriers. The incumbent cable companies will begin to offer cellular service in their cable territories: Shaw in the West, Videotron in Quebec and parts of Ontario, and Bragg in Atlantic Canada. As well, Globalive will offer service in most parts of Canada outside of Quebec and a company called DAVE will offer service in large and medium sized cities in Ontario and Western Canada.

The incumbent cellular carriers will prepare well to defend against the new entrants through strategies such as using their flanker brands Fido (Rogers), Solo (Bell), and Koodo (Telus) to take away market opportunity, and by incenting customers into long term contracts. The new entrants however will still change the dynamic of the market. The strength of the incumbents in the market, and the high cost of both the spectrum and network build, will force the new entrants, especially the non-cable company entrants, to enter the market aggressively or risk an early demise.

The new entrants are all expected to build GSM technology networks and Telus and Bell are rumored to be considering a conversion to GSM technology. From a consumer perspective, this means that as in Europe and other regions, consumers will not have to change their phone every time they want to change a carrier. As well, Rogers, by virtue of its GSM network, will no longer have a monopoly on GSM only phones such as the iPhone.

Additional carrier choice, a single network technology, and an aggressive approach to market share should portend better pricing and offers for consumers.